Optimal Payments (OPAY) ... a gamble in China?

Tuesday 11th August 2015

Pursuant to the latest crackdown (see below) by Chinese authorities on online gambling, I've sold short in OPAY (OPAY LN, mkt cap £1,386 million), the online and mobile payments processor. 

Chinese authorities crack down on online gambling
Source: www.china.org.cn

As I understand matters, OPAY derives c. 47% of its revenue from online gambling (see below).

OPAY presentation on proposed acquisition of Skrill - my red highlight added
Source: OPAY 23rd March 2015

Further, that the RoW - which is principally Asia - accounts for c. 32% of the enlarged group's (post Skrill) revenue.

OPAY presentation on proposed acquisition of Skrill - my red highlight added
Source: OPAY 23rd March 2015

Selling short was not a difficult decision to make.

And another thing ...

As can be seen from page 41 of OPAY's March 2015 presentation (above) on its proposed acquisition of Skrill, OPAY highlights that:

"OPAY regards more than 40 countries and territories as "banned" or "non-serviced" including Iran, Iraq, Sudan, Zimbabwe, Libya, Uganda and Yemen and will not support any online gambling related payment transactions in those countries." 

This compares to Skrill, which indicates:

"Skrill currently regards more than 60 countries as prohibited, including China, Malaysia, Israel, Iran, North Korea and Turkey and therefore will not support any online gambling related payment transactions in those countries."

It's noteworthy that Skrill specifically mentions China as a country where it "... will not support any online gambling related payment transactions ..."

And yet (as highlighted in OPAY's March prospectus below) OPAY has historically derived a significant proportion of its revenue from a single merchant providing services into China. This merchant accounted for 36.7% of OPAY's revenue in 2014. Further, despite Skrill's declared hesitancy towards dealings in China, that it too derived 7% of its 2013 revenue from the same merchant providing services into China.
      

OPAY prospectus from 23rd March 2015
Source: OPAY

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